Opinion
Case No. 1:04-CV-396.
December 30, 2004
OPINION
Plaintiff, Brilliance Audio, Inc. ("BAI"), has sued Defendants, Haights Cross Communications, Inc., Haights Cross Communications, LLC, Haights Cross Operating Company, Recorded Books, LLC, and Audio Adventures, LLC (collectively "Defendants"), alleging claims for copyright infringement and trademark infringement, unfair competition, and dilution under federal law, and trademark infringement and unfair competition under state law. BAI, a producer and seller of recorded books, or "audiobooks," alleges that Defendants have engaged in copyright and trademark infringement by repackaging and relabeling BAI's works as "library editions," which they rent, lease, or sell for commercial advantage. Presently before the Court is Defendants' motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). Defendants contend that: (1) BAI's copyright infringement claim fails because the Copyright Act expressly allows the purchaser of an authorized copy of a copyrighted work to rent that copy without the permission of the copyright holder; and (2) BAI's trademark-based claims fail because the first sale doctrine allows a person to use another's mark in connection with the repackaging and resale of goods bearing the original manufacturer's mark. For the reasons set forth below, the Court will grant the motion and dismiss the case.
Facts
The facts are based up on the allegations of the complaint.
BAI is engaged in the business of developing, authoring, manufacturing, and distributing sound recordings of literary works, commonly referred to as "books on tape" or "audio books." (Compl. ¶ 9.) BAI has conducted its business under the trademark and trade name "Brilliance" since at least 1983, and has registered the Brilliance mark on the principal register of the United States Patent and Trademark Office, Registration No. 1,919,390. (Id. ¶¶ 9, 15.) In the course of its business, BAI has registered and has applied to register its copyrights in the sound recordings that it produces. (Id. ¶ 18.) BAI packages and markets different versions or editions of its books on tape both for retail sale and as "library editions" to libraries and other lending institutions. (Id. ¶ 19.)
BAI alleges that Defendants are repackaging and relabeling BAI's copyrighted sound recordings as being "library editions" and that Defendants rent, lease, or lend BAI's copyrighted products for commercial advantage. (Id. ¶¶ 20, 22-24.) BAI also alleges that Defendants are using BAI's Brilliance mark on the repackaged and relabeled products. (Id. ¶¶ 26, 33.) BAI claims that Defendants have engaged in copyright infringement through their acts of renting or leasing their repackaged products for commercial advantage. (Id. ¶ 28.) In addition, BAI contends that Defendants' use of the Brilliance mark on their repackaged and relabeled goods constitutes trademark infringement, unfair competition, and dilution under federal law, and trademark infringement and unfair competition under Michigan law. (Id. ¶¶ 26, 33, 39, 43-44, 48, 54.)
For purposes of this motion, the Court will refer to Defendants as a single group since it is unnecessary to differentiate between the several defendant entities.
Motion Standard
An action may be dismissed if the complaint fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The moving party has the burden of proving that no claim exists. Although a complaint is to be liberally construed, it is still necessary that the complaint contain more than bare assertions or legal conclusions. In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993) (citing Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988)). All factual allegations in the complaint must be presumed to be true, and reasonable inferences must be made in favor of the non-moving party. 2 Moore's Federal Practice, ¶ 12.34[1][b] (Matthew Bender 3d ed. 2003). The Court need not, however, accept unwarranted factual inferences. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987). Dismissal is proper "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102 (1957)).
Discussion
I. Copyright Infringement Claim
Defendants contend that BAI fails to state a claim for copyright infringement because the "first sale" doctrine expressly permits the purchaser of an authorized copy of a copyrighted work to rent or lease that copy without the permission of the copyright holder. "The first-sale doctrine provides that once the holder of an intellectual property right `consents to the sale of particular copies . . . of his work, he may not thereafter exercise the distribution right with respect to such copies. . . .'" Allison v. Vintage Sports Plaques, 136 F.3d 1443, 1447 (11th Cir. 1998) (quoting M. Nimmer and D. Nimmer,Nimmer on Copyright § 8.12[B][1] (1997)). In the realm of copyright, the first sale doctrine is set forth in Section 109 of the Copyright Act, which provides that "the owner of a particular copy or phonorecord . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord." 17 U.S.C. § 109(a);see also Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199, 203 (4th Cir. 1997) ("Generally, as permitted by what is known as the first-sale doctrine, the copyright owner's right to distribute a copyrighted work does not prevent the owner of a lawful copy of the work from selling, renting, lending, or otherwise disposing of the lawful copy."). The language "otherwise dispose of" includes the right to rent or lease an authorized copy of a work. See Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 96 n. 7 (3d Cir. 1991).
Defendants further contend that the limited exception to the first sale doctrine set forth in Section 109(b) does not apply because that exception pertains only to sound recordings of musical works. The exception provides, in relevant part:
Notwithstanding the provisions of subsection (a), unless authorized by the owners of copyright in the sound recording or the owner of copyright in a computer program . . ., and in the case of a sound recording in the musical works embodied therein, neither the owner of a particular phonorecord nor any person in possession of a particular copy of a computer program . . ., may, for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord or computer program . . . by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending. Nothing in the preceding sentence shall apply to the rental, lease, or lending of a phonorecord for nonprofit purposes by a nonprofit library or nonprofit educational institution. . . .17 U.S.C. § 109(b)(1)(A).
BAI contends that Defendants' motion must be denied for two reasons. First, BAI contends that its copyright infringement claim complies with the notice pleading requirements of Rule 8(a) of the Federal Rules of Civil Procedure and properly states all of the elements necessary for such a claim. BAI further argues that Defendants' motion is not a proper Rule 12(b)(6) motion because the motion requires the Court to look beyond the facts alleged in the complaint in order to establish the premise that Defendants purchased BAI's audiobooks at retail. Second, BAI contends that Defendants' motion must be denied because the exception to the first sale doctrine applies to all sound recordings, including sound recordings of literary works, and not solely to sound recordings containing musical works.
The Court rejects BAI's first argument regarding the procedural basis of Defendants' motion. While it is true that a Rule 12(b)(6) motion may be used to test the merits of a plaintiff's claim, such a motion is also proper where the complaint, on its face, indicates the existence of an affirmative defense or some other legal ground for dismissal of the complaint. See Miskovsky v. Gray, No. 03-6186, 2004 WL 1909462, at *3 (10th Cir. Aug. 27, 2004) (affirming the district court's dismissal because the face of the complaint indicated that the claim was time-barred); Foote v. Public Hous. Comm'r of United States, 107 F. Supp. 270, 273 (W.D. Mich. 1952) (stating that "when the allegations of the complaint show that a suit has not been brought within the statutory period, the defense of the statute of limitations may be raised under Rule 12(b)(6) by motion to dismiss, on the ground that the complaint fails to state a claim upon which relief can be granted"); McCoy v. Goord, 255 F. Supp. 2d 233, 249 (S.D.N.Y. 2003) (noting that while failure to exhaust a claim under the Prison Litigation Reform Act does not constitute a failure to state a claim, a 12(b)(6) motion is the proper vehicle for asserting failure to exhaust where the deficiency is apparent on the face of the complaint). Therefore, the Court need not determine whether Defendants' reliance on the first sale doctrine constitutes an affirmative defense or a doctrine of copyright law that limits the scope of a copyright owner's exclusive rights, and thus, claim for copyright infringement. Rather, the only question is whether the face of the complaint discloses some basis for dismissal, and in this case the Court concludes that it does. Furthermore, BAI alleges that Defendants "are repackaging and/or relabeling retail editions of Plaintiff's sound recordings as being Library Editions." (Compl. ¶ 20 (italics added).) BAI does not claim that the retail editions of its works were stolen or counterfeit. Thus, it may be reasonably inferred from the face of the complaint that Defendants' possession of BAI's products is legal, and Defendants need not prove that they purchased BAI's products.
The remaining issue is whether the exception set forth in § 109(b)(1)(A) is limited to sound recordings of musical works, or whether it applies to all sound recordings. If the former is true, BAI's claim must fail, because the first sale doctrine would preclude a claim for copyright infringement based upon Defendants' leasing or rental of BAI's works. In determining this issue, the Court must first turn to the language of the statute itself. United States v. Health Possibilities, P.S.C., 207 F.3d 335, 338-39 (6th Cir. 2000) ("The starting point in a statutory interpretation case is the language of the statute itself."). A court must construe a statute "as a whole and not interpret one provision in a way that would render another meaningless or superfluous." Grable Sons Metal Prods., Inc. v. Darue Eng'g Mfg., 377 F.3d 592, 597 (6th Cir. 2004) (citing Beck v. Prupis, 529 U.S. 494, 506, 120 S. Ct. 1608, 1617 (2000)); see also Mitchell v. Chapman, 343 F.3d 811, 825 (6th Cir. 2003),cert. denied, 124 S. Ct. 2908 (2004). ("Under accepted canons of statutory interpretation, we must interpret statutes as a whole, giving effect to each word and making every effort not to interpret a provision in a manner that renders other provisions of the same statute inconsistent, meaningless or superfluous.") (quoting Lake Cumberland Trust, Inc. v. E.P.A., 954 F.2d 1218, 1222 (6th Cir. 1992)). Where the language of the statute is clear, the court may not resort to legislative history. Daniel v. Cantrell, 375 F.3d 377, 383 (6th Cir. 2004).
The pertinent language for the Court's analysis is "unless authorized by the owners of copyright in the sound recording . . . and in the case of a sound recording in the musical works embodied therein. . . ." 17 U.S.C. § 109(b)(1)(A). The first part of this language establishes that the exception applies to sound recordings, but the second part, "and in the case of a sound recording in the musical works embodied therein," limits sound recordings to a specific class of sound recordings, namely, those containing musical works. Thus, the application of the statute to sound recordings is expressly limited to those containing musical works and does not cover sound recordings of literary works, such as BAI's audiobooks.
BAI contends that the exception applies to all sound recordings, because the Copyright Act broadly defines "sound recording" to include "works that result from the fixation of a series of musical, spoken, or other sounds. . . ." 17 U.S.C. § 101. BAI further points out that the term "phonorecord" is also broadly defined to include any "material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by any method now known or later developed," 17 U.S.C. § 101, and is not restricted to the capturing of only musical sounds or musical works. BAI's argument fails, however, because it ignores Section 109(b)(1)(A)'s express limitation on sounding recordings to those with "musical works embodied therein." BAI attempts to explain this language by arguing that in addition to authorization from the owner of the copyright in the sound recording, authorization is required from the owner of the musical work copyright "if" the sound recording contains musical works. (Pl.'s Mem. Opp'n at 8.) But the statute does not say that authorization is also required "if musical works [are] embodied therein"; rather, it expressly acknowledges that the exception applies only where the sound recording contains musical works.
Even if the Court were to find the statute ambiguous, the legislative history still supports the conclusion that Congress intended to limit the statute to sound recordings containing musical works. The exception was enacted through the Record Rental Amendment Act, which Congress passed in 1984 in order to address the growing phenomenon of commercial record rental businesses which allowed customers to avoid purchasing the records by taping music at home. See S. Rep. No. 98-162 at 2 (1983). In discussing the proposed amendment, the Committee on the Judiciary reported that "record rentals pose a serious threat to America's record companies, music publishers, performers, songwriters, and record retailers." Id. at 3. The report stated that "a limited modification of the first sale doctrine is warranted to remove the threat that commercial record rentals pose to the health of America's music community." Id. at 4. In addition, the report stated that a purpose of a particular amendment was "to make clear that the bill is fully applicable to the copyright owners of the recorded musical works as well as of the sound recording itself." Id. at 7. Subsequent history pertaining to the sunset provision in the original act also confirms that the problem to be addressed by the amendment was peculiar to the music industry. In its report on the extension of the act, the House Judiciary Committee noted, "In 1984, the Congress adopted the Record Rental Amendment Act, which modifies the first sale doctrine . . . to prohibit the lending of phonorecords unless permitted by the owners of the copyright in the sound recording and in the underlying musical work." H. Rep. No. 100-776 at 1-2 (1988), reprinted in 1988 U.S.C.C.A.N. 4339 (italics added). In fact, during hearings, the committee heard testimony from the Register of Copyrights, who questioned whether the Act was also intended to apply to nondramatic musical works. Although the committee realized that the term "sound recording" covers literary works and dramatic musical works, as well as nondramatic musical works, it noted that the problem to be addressed by the 1984 law was that "consumers listen repeatedly to musical works, thus giving rise to the legitimate concern about displacement of sales." Id. at 3, 1988 U.S.C.C.A.N. at 4341. The committee further noted that:
It is less likely . . . that literary works invite the same kind of long-term, repeated enjoyment by consumers. The problems addressed by the Act in 1984 do not relate to recorded literary works, nor did the testimony in support of the legislation. In addition, during the 1988 hearings, no specific problems regarding the rental of recorded literary works were raised.Id.
In light of the foregoing, BAI has failed to provide any persuasive reason for interpreting the exception as covering sound recordings of literary works.
II. Trademark Claims
Defendants also contend that BAI's trademark-based claims alleged in Counts II-VI of the complaint must be dismissed because the activity of which BAI complains — Defendants' use of the Brilliance mark on Defendants' repackaged products — is permitted under the first sale doctrine, which also limits trademark rights. Defendants contend that their alleged conduct is sanctioned by the rule set forth in Prestonettes, Inc. v. Coty, 264 U.S. 359, 44 S. Ct. 350 (1924), in which the Supreme Court held that a party may use the trademark of a product's manufacturer in connection with the repackaging and resale of such unaltered product, so long as the use of that trademark does not create confusion as to the source of the repackaged goods.See id. at 368-69, 44 S. Ct. at 351.
BAI does not dispute that a purchaser may repackage and resell genuine trademarked goods under the manufacturer's trademark without incurring liability for trademark infringement. (Pl.'s Mem. Opp'n at 18-19 ("Repackaging and redistributing of unaltered trademark goods is permitted under the first sale doctrine only if the repackaged goods include a proper disclosure as to that effect.").) BAI argues, however, that Defendants' motion must be denied, because BAI has properly alleged all the required elements of its trademark-based claims and Defendants are merely attempting to raise a defense rather than disputing the sufficiency of BAI's claims. BAI further contends that Defendants' motion to dismiss is improper because to prevail on their fair use and first sale defenses they would have to prove that they lawfully obtained BAI's products and that they utilized a form of notice sufficient to advise the public about the repackaging.
As with the copyright infringement claim, the Court rejects BAI's argument that Defendants may not raise their fair use and first sale arguments by way of a Rule 12(b)(6) motion. Regardless of whether Defendants' argument is characterized as a defense or a doctrine limiting BAI's trademark rights, a 12(b)(6) motion is proper where the face of the complaint discloses a basis for dismissal as a matter of law.
Under the first sale doctrine, "[t]he resale of genuine trademarked goods generally does not constitute infringement."Softman Prods. Co. v. Adobe Sys., Inc., 171 F. Supp. 2d 1075, 1092 (C.D. Cal. 2001). See also PACCAR Inc. v. TeleScan Techs., L.L.C., 319 F.3d 243, 257 (6th Cir. 2003) ("The first sale doctrine applies when a purchaser `does no more than stock, display, and resell a producer's product under the producer's trademark.'") (quoting Sebastian Int'l, Inc. v. Longs Drug Stores Corp., 53 F.3d 1073, 1076 (9th Cir. 1995)). "The reason behind the rule `is that trademark law is designed to prevent sellers from confusing or deceiving consumers about the origin or make of a product, which confusion ordinarily does not exist when a genuine article bearing a true mark is sold.'" Enesco Corp. v. Price/Costco Inc., 146 F.3d 1083, 1085 (9th Cir. 1998) (quotingNEC Elecs. v. CAL Circuit Abco, 810 F.2d 1506, 1509 (9th Cir. 1987) (citing Prestonettes, Inc.)). "An action will not arise where the goods being sold are genuine goods bearing a true mark."Polymer Tech. Corp. v. Mimran, 37 F.3d 74, 78 (2d Cir. 1994).
In Prestonettes, Inc., the defendant purchased genuine Coty toilet powder and perfume. The defendant subjected the powder to pressure, added a binder, and sold the compound in a metal case under the Coty mark. The defendant rebottled and sold the perfume in smaller bottles. Coty alleged that the defendant had no right to use its trademark in connection with the resale of the powder and perfume. The district court held that the defendant could use Coty's trademark but ordered it to include labels on the goods which clarified that the items were made by Coty and that the goods were independently repackaged and rebottled by the defendant. The court of appeals reversed in light of the perfume's delicate nature and potential for adulteration and issued a preliminary injunction. The Supreme Court, noting that there was no allegation that the defendant was adulterating Coty's products, reversed and upheld the district court's decision allowing the defendant to sell the product with the disclosure labels. See Prestonettes, Inc., 264 U.S. at 367-68, 44 S. Ct. at 351.
Several courts have interpreted Prestonettes, Inc. as establishing a rule that a repackager of trademarked goods has an obligation to include a notice or disclaimer on the product.
Under the authority of the COTY case, the courts have required a repacker . . . to use a label closely following the label approved in the COTY case. That is, the label, if it is to use the trademark of the original manufacturer, must clearly state: (1) that the trademarked product has been . . . repacked; (2) that the . . . repacker is wholly separate and distinct from the original manufacturer; (3) the name of the . . . repacker. A fourth requirement is that the label not emphasize the original manufacturer's trademark by putting it in larger type, different color or size, etc.Enesco Corp., 146 F.3d at 1086 n. 4 (citing 3 J. Thomas McCarthy, McCarthy on Trademarks Unfair Competition § 25:35 (4th ed. 1996)). Other courts have questioned whetherPrestonettes, Inc. establishes an absolute obligation on the part of a repackager to include a label or disclaimer on its product. See Dream Team Collectibles, Inc. v. NBA Props., Inc., 958 F. Supp. 1401, 1420 (E.D. Mo. 1997). The Sixth Circuit has not addressed the issue, but for purposes of Defendants' motion, the Court will assume that it would require a notice or disclaimer similar to that described in Enesco Corp.
In this case, BAI merely alleges that Defendants have used the Brilliance mark on their repackaged goods and that such use is likely to cause confusion or dilution. (Compl. ¶¶ 33, 39, 43.) As mentioned above, such an act does not generally give rise to a trademark, unfair competition, or dilution claim, and therefore fails to state a claim upon which relief can be granted. See Polymer Tech. Corp. v. Mimran, 37 F.3d 74, 78 (2d Cir. 1994). BAI's argument that Defendants are required to prove that they "lawfully obtained" BAI's products must be rejected, because BAI admits that Defendants are repackaging retail editions of BAI's products and BAI has not alleged that Defendants have obtained those retail editions in an unlawful manner. Moreover, BAI does not allege that Defendants failed to include a notice or disclaimer on its product or that such notice or disclaimer is insufficient. Accordingly, BAI's trademark-based claims must be dismissed for failure to state a claim.
Conclusion
For the foregoing reasons, the Court will grant Defendants' motion to dismiss in its entirety and will dismiss the case.
An Order consistent with this Opinion will be entered.